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Medium-term forecasting of euro-area macroeconomic variables with DSGE and BVARX models


  • Lorenzo Burlon

    () (Bank of Italy)

  • Simone Emiliozzi

    () (Bank of Italy)

  • Alessandro Notarpietro

    () (Bank of Italy)

  • Massimiliano Pisani

    () (Bank of Italy)


The paper assesses the performance of medium-term forecasts of euro-area GDP and inflation obtained with a DSGE model and a BVARX model currently in use at the Bank of Italy. The performance is compared with that of simple univariate models and with the Eurosystem projections; the same real time assumptions underlying the latter are used to condition the DSGE and the BVARX forecasts. We find that the performance of both forecasts is similar to that of Eurosystem forecasts and overall more accurate than that of simple autoregressive models. The DSGE model shows a relatively better performance in forecasting inflation, while the BVARX model fares better in forecasting

Suggested Citation

  • Lorenzo Burlon & Simone Emiliozzi & Alessandro Notarpietro & Massimiliano Pisani, 2015. "Medium-term forecasting of euro-area macroeconomic variables with DSGE and BVARX models," Questioni di Economia e Finanza (Occasional Papers) 257, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:opques:qef_257_15

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    References listed on IDEAS

    1. Lees, Kirdan & Matheson, Troy & Smith, Christie, 2011. "Open economy forecasting with a DSGE-VAR: Head to head with the RBNZ published forecasts," International Journal of Forecasting, Elsevier, vol. 27(2), pages 512-528, April.
    2. Litterman, Robert B, 1986. "Forecasting with Bayesian Vector Autoregressions-Five Years of Experience," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(1), pages 25-38, January.
    3. Wieland, Volker & Wolters, Maik, 2013. "Forecasting and Policy Making," Handbook of Economic Forecasting, Elsevier.
    4. Lucia Alessi & Eric Ghysels & Luca Onorante & Richard Peach & Simon Potter, 2014. "Central Bank Macroeconomic Forecasting During the Global Financial Crisis: The European Central Bank and Federal Reserve Bank of New York Experiences," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 32(4), pages 483-500, October.
    5. Christoffel, Kai & Warne, Anders & Coenen, G√ľnter, 2010. "Forecasting with DSGE models," Working Paper Series 1185, European Central Bank.
    6. Rochelle M. Edge & Michael T. Kiley & Jean-Philippe Laforte, 2010. "A comparison of forecast performance between Federal Reserve staff forecasts, simple reduced-form models, and a DSGE model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(4), pages 720-754.
    7. Fabio Busetti, 2014. "Quantile aggregation of density forecasts," Temi di discussione (Economic working papers) 979, Bank of Italy, Economic Research and International Relations Area.
    8. Lorenzo Forni & Andrea Gerali & Alessandro Notarpietro & Massimiliano Pisani, 2012. "Euro area and global oil shocks: an empirical model-based analysis," Temi di discussione (Economic working papers) 873, Bank of Italy, Economic Research and International Relations Area.
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    More about this item


    forecasting; DSGE; BVARX; euro area;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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